The three biggest challenges for baby boomers preparing for retirement
There are three major challenges that you face when preparing for your retirement and it doesn’t matter how much money you have or how big your portfolio is.
As a baby boomer today, with people living longer and longer, you’re probably looking at spending 20 to 35 years in retirement. That’s 20 to 35 years without a paycheck, without your business or profession. That’s living through 20 to 35 years of inflation while basically being unemployed. How do you protect the lifestyle that you’ve worked so hard to achieve, how do you create security for your family and how do you leave a legacy?
As a baby boomer preparing for your retirement you face three major challenges:
- How do you create enough income, on a guaranteed basis, so that you can afford to retire?
- How do you protect your lifestyle that you’ve worked so hard to achieve, against 20 to 35 years of inflation?
- How do you accomplish #1 and #2 in the safest way possible and sleep well at night knowing that your family’s future is secure?
Let’s talk about these challenges individually and how you should approach them.
How do you create enough income, on a guaranteed basis, so you can afford to retire?
Let’s say that you and your spouse are in your 50s or early 60s. You have a decent-sized portfolio and you’d like to retire at 65. At 65, you and your wife will probably both have social security, but it won’t be enough to pay for your lifestyle, your travel, your taxes, your goals and your everyday living expenses. There will be a gap between your social security and the income you need to lead the life you’ve planned. How do you fill this gap on a guaranteed basis?
In the past, you could fill this income gap by using government, corporate or municipal bonds. But now, with extremely low interest rates, you would need a huge portion of your portfolio to produce even a small amount of income for your retirement.
Since 2008, the smart money in retirement planning is using modern, safe, low-cost, sophisticated annuities (keep an open mind here, these aren’t your grandmother’s annuities) specifically designed to produce a lot of income using a relatively small portion of your portfolio. Think of this as setting up a private family pension plan that pays you an income you cannot outlive and passes on the balance to your kids as a legacy. This enables you to fill your retirement income gap, in advance, in a safe and predictable way.
How do you protect the lifestyle that you’ve worked so hard to achieve against 20 to 35 years of inflation?
If the last challenge was about income, this one is about growth. You absolutely must have a growth portion of your portfolio that will enable you to keep up with inflation. But, your growth portfolio before and during retirement MUST be managed to control and reduce risk! This is critical. There are parts of retirement planning that may seem like rocket science but this is not one of them. A major loss in your portfolio like in 2008 WILL change your retirement for the worse. You will either have to wait longer to retire or you will live a smaller lifestyle in retirement. Period.
The key here is to tightly manage the risk in this part of your portfolio. If your portfolio doesn’t have huge losses you can do wonderfully well in retirement with reasonable returns. You should screen managers for risk control first and then for returns. If you take this approach your portfolio will tend to grow quite well. You should not only stay ahead of inflation, but also grow your portfolio and your legacy.
How do you accomplish #1 and #2 in the safest way possible and sleep well at night knowing that your family’s future is secure?
By moving part of your portfolio into an annuity specifically designed to produce a secure income, you not only reduce the overall risk of your portfolio, but you also build a base income for your entire retirement. The rest of your portfolio can then be focused only on giving you a raise over time to keep up with inflation. In addition, when you also use a portfolio manager who focuses on risk control and reduction you will have gone a long way toward creating a safe and secure retirement for your family
As a baby boomer you may feel that preparing for a retirement of 20 to 35 years is a daunting task. To protect your lifestyle and to enjoy a stress-free retirement you must have a common sense plan that does the following:
- Creates income on a guaranteed basis so you can afford to retire
- Grows your portfolio to protect against inflation and
- Does this all in the safest way possible